The real estate sector in India, which is in a slump, is witnessing a flood of new or follow-on private equity (PE) funds in the market. Though funds launched last year found it tough to raise money, 2012 has seen more firms jumping on the fundraising bandwagon.

This is despite the fact that PE/venture capital (VC) deals in realty have come down drastically in 2012 so far. According to data from VCCedge, 17 deals worth $360 million took place till date in 2012 against 38 deals worth $1.3 billion last year.

But raising funds will be tough in this market. Hari Krishna, director, Kotak Realty Fund, said, “The old funds are trying to raise their second fund and, in my opinion, most will fail to raise second funds as investor appetite is very limited and, in any case, the track record of most funds has not been inspiring.”

Krishna said, "Returns have been a function of year of investment. For instance, most funds have earned returns in excess of 25 per cent from their investments in 2005, 2006 and 2009. On the other hand, investments from the year 2007 and 2008 will significantly underperform and in some cases, investors will loose a part of their capital also.”

Bridging the funding gap

The poor market conditions and non-availability of bank loans has squeezed real estate developers and private equity has emerged as an alternate source of funding.

The BSE Realty Index has fallen by 14 per cent since the Union Budget for FY13 was announced while the BSE- Sensex fell by 7 per cent.

According to NSE data, realty firms raised Rs 14,574 crore through 10 Initial Public Offering (IPO) and Follow-on Public Offer (FPO) in 2007. In 2011, companies raised only Rs 60 crore and it slightly improved to Rs 127 crore so far in 2012.

Ramesh Nair, Managing Director - West India, Jones Lang LaSalle said, "The key criteria that most PE funds are looking at are macroeconomic fundamentals and ease of investing and exiting. India has substantially improved on these parameters substantially over the last 5 years."

As per industry estimates, the sector is in need of almost $ 15 billion of private capital over the next twelve months to sustain its growth momentum. The current bank exposure to commercial real estate is already $25 billion and not going up any more, say experts.

According to them, there will be a demand of 200 million square feet for office, 1.5 billion sft for residential and 60 million sft for retail in next 5 years.

Despite few deals, realty PEs on fundraising mode

The real estate sector in India, which is in a slump, is witnessing a flood of new or follow-on private equity (PE) funds in the market. Though funds launched last year found it tough to raise money, 2012 has seen more firms jumping on the fundraising bandwagon.

The real estate sector in India, which is in a slump, is witnessing a flood of new or follow-on private equity (PE) funds in the market. Though funds launched last year found it tough to raise money, 2012 has seen more firms jumping on the fundraising bandwagon.

This is despite the fact that PE/venture capital (VC) deals in realty have come down drastically in 2012 so far. According to data from VCCedge, 17 deals worth $360 million took place till date in 2012 against 38 deals worth $1.3 billion last year.

But raising funds will be tough in this market. Hari Krishna, director, Kotak Realty Fund, said, “The old funds are trying to raise their second fund and, in my opinion, most will fail to raise second funds as investor appetite is very limited and, in any case, the track record of most funds has not been inspiring.”

Krishna said, "Returns have been a function of year of investment. For instance, most funds have earned returns in excess of 25 per cent from their investments in 2005, 2006 and 2009. On the other hand, investments from the year 2007 and 2008 will significantly underperform and in some cases, investors will loose a part of their capital also.”

Bridging the funding gap

The poor market conditions and non-availability of bank loans has squeezed real estate developers and private equity has emerged as an alternate source of funding.

The BSE Realty Index has fallen by 14 per cent since the Union Budget for FY13 was announced while the BSE- Sensex fell by 7 per cent.

According to NSE data, realty firms raised Rs 14,574 crore through 10 Initial Public Offering (IPO) and Follow-on Public Offer (FPO) in 2007. In 2011, companies raised only Rs 60 crore and it slightly improved to Rs 127 crore so far in 2012.

Ramesh Nair, Managing Director - West India, Jones Lang LaSalle said, "The key criteria that most PE funds are looking at are macroeconomic fundamentals and ease of investing and exiting. India has substantially improved on these parameters substantially over the last 5 years."

As per industry estimates, the sector is in need of almost $ 15 billion of private capital over the next twelve months to sustain its growth momentum. The current bank exposure to commercial real estate is already $25 billion and not going up any more, say experts.

According to them, there will be a demand of 200 million square feet for office, 1.5 billion sft for residential and 60 million sft for retail in next 5 years.